<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K
----------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
November 1, 1995
----------------------
Date of report (Date of earliest event reported)
THE ALPINE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-9078 22-1620387
----------------- ---------------------- -------------------
(State or other Commission File Number (I.R.S. Employer
jurisdiction of Identification
incorporation) Number)
1790 Broadway, New York, New York 10019-1412
----------------------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (212) 757-3333
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(Former name or former address, if changed since last report)
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<PAGE>
ITEM 5. OTHER EVENTS
Effective November 1, 1995, James R. Kanely resigned as President and
Chief Operating Officer of The Alpine Group, Inc. (the "Company"), and Mr.
Kanely entered into a consulting agreement, dated as of November 1, 1995 (the
"Consulting Agreement"). The Consulting Agreement provides for the retention of
Mr. Kanely as a consultant to the Company until October 31, 2000, subject to
certain exceptions, and a lump sum payment to Mr. Kanely of $610,000 upon
execution of the Consulting Agreement and an annual consulting fee of $120,000
per year during the term of the Consulting Agreement. A copy of the Consulting
Agreement is being filed as an exhibit hereto and is incorporated herein by
reference.
In addition, the Company is herewith filing the financial statements
described in Item 7 relating to certain of its subsidiaries, as
follows: (i) Superior Telecommunications Inc. (formerly Superior TeleTec Inc.),
a Georgia corporation, and (ii) Adience, Inc., a Delaware corporation.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) The financial statements listed below are being filed herewith.
ADIENCE, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of independent accountants
Consolidated balance sheets at January 1, 1995 and April 30, 1995
Statement of operations for the four month period ended
April 30, 1995
Consolidated statement of shareholders' equity for the
four month period ended April 30, 1995
Consolidated statement of cash flows for the four month period ended
April 30, 1995
Notes to consolidated financial statements
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated balance sheets at April 30, 1995 and July 31, 1995
Consolidated statements of operations for the three months ended
July 31, 1994 and 1995
Consolidated statement of shareholders' equity for the three months
ended July 31, 1994 and 1995
Consolidated statements of cash flows for the three months ended
July 31, 1994 and 1995
Notes to consolidated financial statements
-2-
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. (FORMERLY SUPERIOR TELETEC INC.)
AUDITED FINANCIAL STATEMENTS:
Report of independent accountants
Balance sheets at May 1, 1994 and April 30, 1995
Statements of operations and retained earnings for the period from November 11,
1993 to May 1, 1994 and for the year ended April 30, 1995
Statements of cash flows for the period from November 11, 1993 to May 1, 1994
and for the year ended April 30, 1995
Notes to financial statements
UNAUDITED FINANCIAL STATEMENTS:
Condensed consolidated balance sheets at July 30, 1995 and April 30, 1995.
Consolidated statements of operations and retained earnings for the three
months ended July 31, 1994 and July 30, 1995
Condensed consolidated statements of cash flows for the three months ended
July 31, 1994 and July 30, 1995
Notes to financial statements
(b) Exhibits
1 - Consulting Agreement, dated as of November 1, 1995,
between the Company and James R. Kanely
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE ALPINE GROUP, INC.
Date: November 20, 1995 By: /s/ David S. Aldridge
-----------------------
David S. Aldridge
Chief Financial Officer
-4-
<PAGE>
ADIENCE, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF APRIL 30, 1995 AND JANUARY 1, 1995
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Adience, Inc.:
We have audited the accompanying consolidated balance sheets of Adience, Inc. (a
Delaware corporation) as of April 30, 1995 and January 1, 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the four-month period ended April 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Adience, Inc. as of April 30,
1995, and January 1, 1995, and the results of its operations and its cash flows
for the four-month period then ended in conformity with generally accepted
accounting principles.
Pittsburgh, Pennsylvania ARTHUR ANDERSEN LLP
June 16, 1995
1
<PAGE>
ADIENCE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, January 1,
(IN THOUSANDS) 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,974 $ 3,226
Accounts receivable, less allowance
(April 30, 1995--$897; January 1, 1995--$835) 17,983 15,462
Inventories 9,547 9,686
Cost and estimated earnings in excess
of billings on uncompleted contracts 953 443
Prepaid expenses, deposits and other 1,181 1,025
Assets held for sale 2,473 2,552
Deferred income taxes 1,581 1,932
- --------------------------------------------------------------------------------
Total current assets 35,692 34,326
- --------------------------------------------------------------------------------
Net assets of discontinued operations 8,030 8,030
Property, plant and equipment:
Land 1,425 1,424
Buildings 7,198 7,176
Machinery and equipment 14,517 14,114
- --------------------------------------------------------------------------------
23,140 22,714
Less allowances for depreciation 1,058 0
- --------------------------------------------------------------------------------
22,082 22,714
Other assets 2,080 2,094
Goodwill, net of amortization 38,163 38,722
- --------------------------------------------------------------------------------
Total assets $106,047 $105,886
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
2
<PAGE>
ADIENCE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, January 1,
(IN THOUSANDS) 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 14,387 $ 12,468
Current portion of long-term obligations 714 662
Accounts payable and other 8,722 9,162
Salaries, wages and withholdings 1,330 1,139
Payable to former principal shareholder 563 494
Accrued expenses 6,195 7,111
Billings in excess of costs and estimated
earnings on uncompleted contracts 165 66
Accrued insurance 5,208 5,964
Accrued interest 4,449 2,515
Income tax payable 1,558 1,578
Deferred income taxes 24 23
- --------------------------------------------------------------------------------
Total current liabilities 43,315 41,182
- --------------------------------------------------------------------------------
Payable to affiliate 3,583 3,683
Payable to former principal shareholder 1,317 1,562
Long-term obligations 47,213 46,450
Deferred income taxes 1,759 2,109
Shareholders' equity:
Common stock, $.01 par value;
authorized 20,000,000 shares;
issued and outstanding 10,100,000 shares. 101 101
Additional paid-in capital 12,303 12,303
Retained earnings (deficit) (3,688) (1,504)
Foreign currency translation 144 0
- --------------------------------------------------------------------------------
Total shareholders' equity 8,860 10,900
- --------------------------------------------------------------------------------
Total liabilities and shareholders $106,047 $105,886
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- --------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FOUR-MONTH PERIOD ENDED APRIL 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30,
(IN THOUSANDS) 1995
- --------------------------------------------------------------------------------
<S> <C>
Net revenue $33,650
Costs and expenses
Cost of goods sold 27,011
Selling, general and administrative 5,742
Amortization of goodwill 515
- --------------------------------------------------------------------------------
Total costs and expenses 33,268
Operating profit 382
Other income (expense)
Interest and other income 328
Interest expense (2,836)
- --------------------------------------------------------------------------------
Total other income (expense) (2,508)
Loss from operations before taxes (2,126)
Income tax expense 58
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Net (loss) $(2,184)
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Net (loss) per common share (0.22)
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE FOUR-MONTH PERIOD ENDED APRIL 30, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Additional Retained Foreign Total
Common Paid In Earnings Currency Shareholders'
(IN THOUSANDS) Stock Capital (Deficit) Translation Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $101 $12,303 $(1,504) $ $10,900
Net (loss) (2,184) (2,184)
Foreign currency
translation adjustment 144 144
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at April 30, 1995 $101 $12,303 $(3,688) $144 $ 8,860
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE>
ADIENCE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FOUR-MONTH PERIOD ENDED APRIL 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN THOUSANDS) April 30, 1995
- --------------------------------------------------------------------------------
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) $(2,184)
Non-cash expenses included in loss:
Depreciation and amortization 1,881
Provision for doubtful accounts 63
Changes in operating assets and liabilities:
Accounts receivable (2,583)
Inventories 139
Costs and estimated earnings in excess
of billings on uncompleted contracts (509)
Accounts payable, salaries, wages and
withholdings, accrued expenses, accrued
insurance, accrued interest, income tax payable
and payable to principal shareholder (184)
Billings in excess of costs and estimated
earnings on uncompleted contracts 99
Payable to affiliate (100)
Other (145)
- --------------------------------------------------------------------------------
Net cash used by operating activities (3,523)
- --------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of assets 266
Purchase of property, plant and equipment (426)
Other (124)
- --------------------------------------------------------------------------------
Net cash used by investing activities (284)
- --------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowing on revolving lines of credit 1,919
Net borrowings on long-term obligations 636
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Net cash provided by financing activities 2,555
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Net decrease in cash and cash equivalents (1,252)
Cash and cash equivalents at beginning of period 3,226
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,974
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
ADIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACQUISITION BY THE ALPINE GROUP, INC.
On December 21, 1994, The Alpine Group, Inc. ("Alpine") acquired from certain
stockholders of Adience, Inc. ("Adience") 82.3% of its outstanding common stock
(the "Adience Acquisition"). At April 30, 1995, Alpine, which had previously
purchased 4.9% of Adience's common stock, owned 87.2% of Adience's outstanding
common stock.
As of December 21, 1994 Alpine and Information Display Technology, Inc. ("IDT"),
a majority-owned subsidiary of Adience, entered into an Agreement and Plan of
Merger, which provides for the merger of Alpine's information display group (a
business segment of Alpine), comprised of Alpine PolyVision, Inc. ("APV") and
Posterloid Corporation ("Posterloid"), with and into two separate wholly-owned
subsidiaries of IDT formed for the purpose of acquiring APV and Posterloid. On
June 14, 1995, Alpine distributed a majority of its ownership in the information
display group, consisting of IDT, APV and Posterloid to its stockholders. As a
result of the distribution, the investment in IDT has been reflected as "Net
assets of discontinued operations".
Consideration paid in the Adience Acquisition consisted of 82,267 shares of a
new series of Alpine's 8% cumulative convertible senior preferred stock ("8%
Preferred Stock") with a liquidation preference of $50 per share and 170,615
shares of post-merger PolyVision common stock. The PolyVision stock delivered
by Alpine to the Adience stockholders is subject to a consideration reset. The
consideration reset requires Alpine to deliver to the selling stockholders an
amount equal to the 170,615 shares of PolyVision common stock multiplied by the
difference, if any, between $33.60 and the greater of the average closing price
for PolyVision common stock on each of the 20 trading days preceding August 1,
1995 and $11.25 per share. The consideration reset will be payable, at the
option of Alpine, in either 8% Preferred Stock or PolyVision common stock, or a
combination thereof.
The Adience Acquisition has been accounted for using the purchase method to the
extent of the percentage of outstanding common stock acquired by Alpine. The
12.8% outstanding common stock not acquired by Alpine remains reflected at
prevailing net book value. In effect, 12.8% of the pre-acquisition retained
earnings (deficit) is carried forward in Adience's post-acquisition balance
sheet. On July 21, 1995, the 12.8% minority interest was purchased by Alpine
for $1.6 million in a cash out merger. As a result of this transaction, Adience
became a 100% wholly owned subsidiary of Alpine. Accordingly, Adience's results
of operations have been included in Alpine's consolidated results on a
prospective basis from the date of the acquisition. The estimated purchase
price for the Adience Acquisition (including expenses) of $12.4 million has been
allocated to the fair market value of Adience's assets and liabilities as of the
Adience Acquisition date based on preliminary assumptions and is subject to
revision. The excess of the estimated purchase price over the estimated fair
market value of identifiable net assets acquired resulted in goodwill of
approximately $38.7 million, which is being amortized on a straight line basis
over 30 years.
7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Adience and
Adience Canada. All material intercompany accounts and transactions have been
eliminated from the consolidated financial statements.
The accounts of IDT are included in the consolidated balance sheets under the
caption "Net assets of discontinued operations." The intercompany payable to
IDT is separately disclosed in the accompanying balance sheets (Payable to
affiliate), since the right of offset does not exist between the companies.
Certain reclassifications were made to the January 1, 1995 balance sheet in
order to conform to the April 30, 1995 balance sheet presentation.
CASH FLOW REPORTING
Cash and cash equivalents include all highly liquid investments with a maturity
of three months or less when purchased.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined on
the first-in, first-out (FIFO) or average cost method. Inventories consist
primarily of raw materials of $3.0 million and $3.2 million, work-in-process of
$1.5 million and $1.6 million and finished goods of $5.0 million and $4.8
million at April 30, 1995 and January 1, 1995, respectively.
REVENUE RECOGNITION
Approximately 41% of revenues for the period ended April 30, 1995 were recorded
on the percentage of completion method of accounting, measured on the basis of
costs incurred to estimated total costs which approximates contract performance
to date. Provisions for losses on uncompleted contracts are made if it is
determined that a contract will ultimately result in a loss.
Substantially all remaining revenue is comprised of direct product shipments to
customers and short duration refractory material sales, installation and
maintenance work, which are recorded as revenue when shipped and/or installed.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and reflects adjustments related
to the allocation of the Alpine purchase price to assets based upon their
estimated fair values as of the date of the acquisition. Improvements to
existing equipment that materially extend the life of properties are capitalized
as incurred.
Expenditures for normal maintenance and repairs are charged to expense as
incurred and amounted to $2.0 million for the period ended April 30, 1995.
Depreciation expense is computed using the straight-line method based upon the
estimated useful lives of the respective assets. Amortization of assets under
capital leases is included in depreciation expense.
GOODWILL
Goodwill resulting from the excess of the purchase price over net identifiable
assets acquired by Alpine is being amortized over 30 years on the straight-line
method. Goodwill is periodically reviewed to access recoverability from future
operations using undiscounted cash flows, in accordance with the provisions of
Statement of Financial Acconting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Impairments would be recognized in operating results if a permanent diminution
in value occurred.
8
<PAGE>
NOTE 2 - CONTINUED
INCOME TAXES
Deferred income taxes are recorded to reflect certain items of income and
expense recognized in different periods for financial reporting and tax
purposes. Adience accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109), which requires an asset and liability approach.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the company's foreign
subsidiary is measured using local currency as the functional currency. Assets
and liabilities of operations denominated in foreign currencies are translated
into U.S. dollars at exchange rates in effect at year-end, while revenues and
expenses are translated at average exchange rates prevailing during the year.
The resulting translation gains and losses are charged directly to cumulative
translation adjustment, a component of stockholders' equity, and are not
included in net income until realized through sale or liquidation of the
investment. Foreign exchange gains and losses incurred on foreign currency
transactions are included in net income.
CONCENTRATIONS OF CREDIT RISK
Adience's products are sold and revenues are derived from companies in
diversified industries. Credit is extended to customers based upon an
evaluation of the customers' financial condition and generally collateral is not
required. At April 30, 1995 and January 1, 1995, accounts receivable from
customers in the steel and steel-related industries total approximately $11.5
million and $9.1 million, respectively. Credit losses relating to customers in
the steel and steel-related industries have been within management's
expectations.
EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing income or loss by the weighted
average number of shares outstanding. For the periods presented, the weighted
average number of shares outstanding was 10,100,000.
3. CONTRACTS IN PROGRESS
The status of contract costs on uncompleted construction contracts was as
follows:
<TABLE>
<CAPTION>
Costs And Estimated Billings In Excess
Earnings In Excess Of Costs And
Of Billings Estimated Earnings Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
APRIL 30, 1995:
Costs and estimated earnings $994 $491 $1,485
Billings 41 656 697
- --------------------------------------------------------------------------------
$953 $165 $ 788
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- --------------------------------------------------------------------------------
JANUARY 1, 1995:
Costs and estimated earnings $460 $102 $ 562
Billings 17 168 185
- --------------------------------------------------------------------------------
$443 $ 66 $ 377
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</TABLE>
9
<PAGE>
4. LINES OF CREDIT
Adience entered into a financing agreement with Congress Financial Corporation
("Congress") that had a renewal date of June 30, 1994 (the "Renewal Date").
Certain revisions were made to the terms of the agreement during 1994 and 1995,
including the extension of the Renewal Date to September 30, 1995. The facility
remains in effect year to year thereafter, unless terminated upon sixty days
written notice by either party on the anniversary of the Renewal Date in any
year. Under the revised agreement, Adience may request loan advances not to
exceed the lesser of $14.0 million or available collateral (85% of eligible
accounts receivable less than 90 days, 50% of eligible bagged inventory plus 30%
of eligible raw material and finished goods inventory which does not constitute
bagged inventory). The loan is collateralized by accounts receivable,
inventory, fixed assets, intangible assets and Adience's shares of IDT. In
addition, IDT has guaranteed the Adience line of credit and has pledged as
collateral its own accounts receivable, inventory and equipment. The interest
rate on the loan is 2.5% over the prime rate (effective rate of 11.5% at April
30, 1995). At April 30, 1995, Adience had borrowed $14.4 million under the
credit facility including checks in transit of $2.0 million.
In addition, IDT entered into a financing agreement with Congress, that expires
June 30, 1995. The facility remains in effect year to year thereafter, unless
terminated upon sixty days written notice by either party on the anniversary of
the Renewal Date in any year. If the Congress facility is not renewed or if
alternate financing is not obtained, management believes that IDT will be able
to generate sufficient cash flow from operations to meet its working capital
needs. Certain revisions were also made to the terms of the agreement during
1994. Under the revised agreement, IDT may request loan advances not to exceed
the lesser of $5 million or available collateral (85% of eligible accounts
receivable less than 90 days plus 30% of eligible raw material and finished
goods inventory). The loan is collateralized by accounts receivable, inventory
and fixed assets. Adience guarantees IDT's debt to Congress. The interest rate
on the loan is 2.5% over the prime rate. At April 30, 1995, IDT had borrowed
$369,000 under the credit facility. Letters of credit issued under the facility
totaled $700,000 at April 30, 1995, which reduced the availability under the
financing arrangement in a like amount.
Both Adience and IDT pay commitment fees on the unused portion of their credit
facility of 0.5% per annum. Under the terms of the financing agreements, both
companies are required to maintain certain financial ratios and meet other
financial conditions. The agreements do not allow the companies to incur
additional indebtedness, pay cash dividends, make certain investments, advances
or loans and limits annual capital expenditures. As of April 30, 1995 and
January 1, 1995, Adience and IDT were in compliance with the covenants of their
respective agreements.
10
<PAGE>
5. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
April 30, January 1,
1995 1995
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
New Senior Secured Notes due 2002, interest at 11% $49,079 $49,079
Capital lease obligations 621 587
Notes payable with monthly installments of principal
interest of $22 through December 1997, interest at 10% 587 653
Industrial Development Authority Note with monthly
installments of principal and interest of $2 through
February 2010, interest at 2% 343 --
Machinery and Equipment Loan Fund Note with
monthly installments of principal and interest of $4
through February 2002, interest at 2% 361 --
Other (interest ranges from 10% to 13%) 519 556
- ---------------------------------------------------------------------------------------------------------
51,510 50,875
Less: current portion 714 662
- ---------------------------------------------------------------------------------------------------------
50,796 50,213
Discount on New Senior Secured Notes 3,583 3,763
- ---------------------------------------------------------------------------------------------------------
$47,213 $46,450
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
New Senior Secured Notes of $49.1 million with an annual interest rate of 11%
were issued under an indenture agreement dated as of June 30, 1993. The New
Secured Notes are redeemable at the option of Adience after December 15, 1997.
The New Secured Notes are not guaranteed by the subsidiaries of Adience. The
New Secured Notes are secured by a lien on all the assets of Adience, including
the stock of IDT.
Adience, on a consolidated basis, has agreed to certain restrictive covenants
which are customary for such financings including, among other things,
limitations on additional indebtedness, limitations on asset sales and
restrictions on the payment of dividends.
11
<PAGE>
NOTE 5 - CONTINUED
Principal maturities of long-term obligations for the years ended April 30, are
as follows:
(In thousands)
1996. . . . . . . . . . . . . . . . . . . . . $ 714
1997. . . . . . . . . . . . . . . . . . . . . 618
1998. . . . . . . . . . . . . . . . . . . . . 457
1999. . . . . . . . . . . . . . . . . . . . . 188
2000. . . . . . . . . . . . . . . . . . . . . 111
Thereafter. . . . . . . . . . . . . . . . . . 49,422
-------
$51,510
-------
-------
Property, plant and equipment at April 30, 1995 and January 1, 1995 includes
equipment, automobiles and trucks under capital leases with a net book value of
$1.5 million and $1.4 million, respectively. During the period ended April 30,
1995 Adience incurred capital lease obligations of $190,000.
6. OPERATING LEASES
Adience leases certain buildings, machinery, and equipment under both short- and
long-term lease arrangements. Future minimum lease commitments under non-
cancelable operating leases are not significant. Rental expense relating to
such leases was approximately $634,000 for the period ended April 30, 1995.
7. DISCONTINUED OPERATIONS
In connection with the IDT Merger and Distribution (See Note 1), Adience's
consolidated financial statements and notes thereto have been reclassified to
reflect the operations of IDT as discontinued.
The value of net assets represents Adience's 80.3% share in IDT which has an
estimated fair value of $10.0 million.
8. RESEARCH AND DEVELOPMENT EXPENSE
Adience incurred research and development expense of $366,000 for the period
ended April 30, 1995.
12
<PAGE>
9. INCOME TAXES
(Loss) income from continuing operations before income taxes, consisted of:
Period Ended April 30, 1995
----------------------------------------------------------------
(In thousands)
Domestic $(2,291)
Canadian 165
------------------------------------------------------------
(2,126)
------------------------------------------------------------
Federal, foreign, and state income taxes provision (benefits) from continuing
operations consisted of the following:
Period Ended April 30, 1995
----------------------------------------------------------------
(In thousands)
Current:
Federal $(822)
Foreign 48
State --
------------------------------------------------------------
Total Current (774)
------------------------------------------------------------
Deferred:
Federal 659
Foreign 10
State --
Change in valuation allowance 163
------------------------------------------------------------
Total Deferred 832
------------------------------------------------------------
Total income tax provision (benefit) 58
------------------------------------------------------------
The effective income tax rate from continuing operations varied from the
statutory federal income tax (benefit) rate as follows:
Period Ended April 30, 1995
----------------------------------------------------------------
Statutory federal income tax rate (35.0)%
Increases (decreases):
Effect on Canadian income taxes 2.7
Change in valuation allowance 23.1
Amortization of goodwill 8.4
Other items 3.5
----------------------------------------------------------------
2.7 %
----------------------------------------------------------------
13
<PAGE>
NOTE 9 - CONTINUED
Deferred tax liabilities (assets) are comprised of the following at April 30,
1995 and January 1, 1995:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, January 1,
(IN THOUSANDS) 1995 1995
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Property, plant and equipment $4,968 $5,235
Pension accrual 270 287
Accounting method change from LIFO -- 309
- --------------------------------------------------------------------------------
Gross deferred tax liabilities 5,238 5,831
- --------------------------------------------------------------------------------
Inventory reserves (167) (853)
Accrued commissions and labor costs (4,019) (2,829)
Bad debt reserve (382) (352)
State income & sales/use tax liability (25) (24)
Environmental liability (518) (707)
IRS interest accrual (400) (400)
Inventory Section 263A costs (162) (214)
NOL carryforwards (10,426) (9,604)
Foreign tax credits (276) (510)
Minimum tax credits (402) (402)
Other (107) (101)
- --------------------------------------------------------------------------------
Gross deferred tax assets (16,884) (15,996)
Valuation allowance 11,848 10,365
- --------------------------------------------------------------------------------
Net deferred tax liability $ 202 $ 200
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
SFAS 109 requires a valuation allowance when it is "more likely than not that
some portion or all of the deferred tax assets will not be realized." It
further states that "forming a conclusion that a valuation allowance is not
needed is difficult when there is negative evidence such as cumulative losses in
recent years." The ultimate realization of this deferred income tax asset
depends on the Company's ability to generate sufficient taxable income in the
future. While the Company believes that the deferred income tax asset will be
fully or partially realized by future operating results, losses in recent years
and a desire to be conservative make it appropriate to record a valuation
allowance.
As of April 30, 1995, Adience has a net operating loss carryforward for domestic
federal income tax purposes of approximately $26.0 million which will expire in
2007, 2008 and 2009. Minimum tax and foreign tax credits of $678,000 are also
available to offset federal income tax liabilities to the extent that regular
tax exceeds tentative minimum tax in subsequent years. Effective June 30, 1993,
and December 21, 1994, Adience had ownership changes, as defined by Section 382
of the Internal Revenue Code, which may limit Adience's ability to utilize the
pre-ownership change portion of its net operating loss and/or credit. An
examination of Adience's consolidated U.S. income tax returns for 1991 through
1993 and Adience Canada's income tax returns for 1992 through 1993 are
currently underway. Any resulting adjustments for those years will impact
Adience's net operating loss carryforwards.
10. EMPLOYEE BENEFITS
During 1992, Adience initiated a 401(k) Savings Plan. This plan covers
substantially all non-bargaining employees, including those employed by IDT, who
meet minimum age and service requirements. The Company matches employee
contributions of up to 8 percent of compensation at a rate of 25 percent. In
addition, effective January 1, 1994, the Company declared a discretionary
contribution equal to 3 percent of employees' salaries. Amounts charged against
income totaled $173,000 for the period ended April 30, 1995.
14
<PAGE>
NOTE 10 - CONTINUED
Adience and subsidiaries maintain various defined benefit pension plans covering
substantially all hourly employees. The plans provide pension benefits based on
the employee's years of service or the average salary for a specific number of
years of service. Adience's funding policy is to make annual contributions to
the extent deductible for federal income tax purposes.
Plan assets and projected benefit obligations for service to date for Adience's
defined benefit pension plans aggregated approximately $6.8 million at April 30,
1995 and January 1, 1995. The components of net periodic pension cost for the
periods ended April 30, 1995 is not material to the consolidated financial
statements. Plan assets are invested in cash, short-term investments, equities,
and fixed income instruments. The actuarial present value of the projected
benefit obligation at April 30, 1995 and January 1, 1995 was determined using a
weighted average discount rate of 7.5%. The expected long-term rate of return
on plan assets was 7.5% at April 30, 1995 and January 1, 1995.
Certain union employees of Adience and subsidiaries are covered by multi-
employer defined benefit retirement plans. Expense relating to these plans
amounted to $376,000, for the period ended April 30, 1995.
In December 1990, the Financial Accounting Standards Board issued SFAS No. 106
"Employers' Accounting for Post-retirement Benefits Other Than Pensions" (SFAS
No. 106), that requires that the projected future cost of providing post-
retirement benefits, such as health care and life insurance, be recognized as an
expense as employees render service instead of when the benefits are paid. The
Company currently provides only life insurance benefits to certain of its hourly
and salaried employees on a fully insured basis. Adoption of SFAS No. 106 did
not have a material impact on the Company's consolidated financial statements.
In November 1992, the Financial Accounting Standards Board issued new rules that
require that the projected future cost of providing post-employment benefits be
recognized as an expense as employees render service instead of when the
benefits are paid. The Company believes its accrual for post-employment
benefits (workers' compensation) is adequate.
15
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
At April 30, 1995, Adience had $179,000 in irrevocable standby letters of credit
outstanding, not reflected in the accompanying consolidated financial
statements, as guarantees in force for various insurance policies, performance
and bid bonds. These instruments are usually for a period of one year or the
duration of the contract. The letters of credit reduce Adience's availability
under the Congress credit facility.
In February 1992, IDT was cited by the Ohio Environmental Protection Agency (the
"Ohio EPA") for violations of Ohio's hazardous waste regulations, including
speculative accumulation of waste (holding waste on-site beyond the legal limit)
and illegal disposal of hazardous waste on the site of its Alliance, Ohio
manufacturing facility.
In December 1993, IDT and Adience signed a consent order with the Ohio EPA and
Ohio Attorney General which required IDT and Adience to pay to the State of Ohio
a civil penalty of $200,000 (of which IDT paid $175 and Adience paid $25) and to
remediate the site in accordance with specified cleanup goals. In addition, the
consent order requires the payment of stipulated penalties of up to $1,000 per
day for failure to satisfy certain requirements of the consent order including
milestones in the closure plan. In October 1994, IDT and Adience filed a
proposed amendment to the consent order which would allow IDT and Adience to
establish risk-based cleanup goals, an approach which has been approved by the
Ohio EPA for other contaminated sites. If the Ohio EPA approves this proposed
amendment, use of this approach is expected to reduce the extent and cost of
remediation required at this site. The Ohio EPA has not yet responded to this
proposed amendment. At April 30, 1995, environmental accruals amounted to
$185,000, which represents management's reasonable estimate of the amounts
remaining to be incurred in this matter, including the costs of effecting the
closure plan, bonding and insurance costs, penalties and legal and consultants'
fees. This amount is included under the caption "Net assets of discontinued
operations" in the accompanying balance sheet. Since 1991, Adience and IDT have
together paid $693,000 (excluding the civil penalty) for the environmental
clean-up related to the Alliance facility. If the Ohio EPA does not accept the
proposed amendment to the consent order, the cost of the remediation may exceed
the amounts currently accrued.
Under the acquisition agreement pursuant to which IDT acquired the property from
Adience in 1990, Adience represented and warranted that, except as otherwise
disclosed to IDT, no hazardous material has been stored or disposed of on the
property. No disclosure of storage or disposal of hazardous material on the
site was made. Accordingly, Adience is required to indemnify IDT for any losses
in excess of $250,000. IDT has notified Adience that it is claiming the right
to indemnification for all costs in excess of $250,000 incurred by IDT in this
matter and has received assurance that Adience will honor such claim.
Adience is also engaged in various other legal actions arising in the ordinary
course of business. Management believes, after discussions with internal and
external counsel, that the ultimate outcome of the proceedings will not have a
material adverse effect on Adience's consolidated financial position, liquidity
or results of operations.
16
<PAGE>
ADIENCE, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1995
<PAGE>
ADIENCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
July 31, April 30,
1995 1995
(IN THOUSANDS) (Unaudited) (Audited)
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,593 $ 1,974
Accounts receivable, less allowance
(July 31, 1995--$863; April 30, 1995--$897) 17,808 17,983
Inventories 10,764 9,547
Cost and estimated earnings in excess
of billings on uncompleted contracts 1,322 953
Prepaid expenses, deposits and other 1,269 1,181
Assets held for sale 2,485 2,473
Deferred income taxes 1,581 1,581
- --------------------------------------------------------------------------------
Total current assets 36,822 35,692
- --------------------------------------------------------------------------------
Net assets of discontinued operations -- 8,030
Property, plant and equipment:
Land 1,425 1,425
Buildings 7,199 7,198
Machinery and equipment 14,857 14,517
- --------------------------------------------------------------------------------
23,481 23,140
Less allowances for depreciation 1,681 1,058
- --------------------------------------------------------------------------------
21,800 22,082
Other assets 1,461 2,080
Goodwill, net of amortization 33,427 38,163
- --------------------------------------------------------------------------------
Total assets $ 93,510 $ 106,047
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
1
<PAGE>
ADIENCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
July 31, April 30,
1995 1995
(IN THOUSANDS) (Unaudited) (Audited)
- --------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ -- $ 14,387
Current portion of long-term obligations 701 714
Accounts payable and other 11,731 8,722
Salaries, wages and withholdings 1,662 1,330
Payable to former principal shareholder 512 563
Accrued expenses 6,086 6,195
Billings in excess of costs and estimated
earnings on uncompleted contracts 71 165
Accrued insurance 5,223 5,208
Accrued interest 69 4,449
Income tax payable 1,647 1,558
Deferred income taxes 24 24
- --------------------------------------------------------------------------------
Total current liabilities 27,726 43,315
- --------------------------------------------------------------------------------
Payable to The Alpine Group, Inc. 53,069 --
Payable to affiliate -- 3,583
Payable to former principal shareholder 1,231 1,317
Long-term obligations 6,191 47,213
Deferred income taxes 1,774 1,759
Shareholders' equity:
Common stock, $.01 par value;
authorized 20,000,000 shares;
issued and outstanding 10,100,000 shares. 101 101
Additional paid-in capital 6,518 12,303
Retained earnings (deficit) (3,228) (3,688)
Foreign currency translation 128 144
- --------------------------------------------------------------------------------
Total shareholders' equity 3,519 8,860
- --------------------------------------------------------------------------------
Total liabilities and shareholders $ 93,510 $ 106,047
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
2
<PAGE>
ADIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
July 31, July 31,
(In thousands of dollars, except per share data) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $ 29,460 $ 26,414
Costs and expenses:
Cost of revenues 22,635 22,165
Selling, general and administrative 3,680 4,666
Amortization of intangible asset 311 277
- --------------------------------------------------------------------------------
26,626 27,108
- --------------------------------------------------------------------------------
Operating income (loss) 2,834 (694)
- --------------------------------------------------------------------------------
Other income (expense):
Interest and other income 115 262
Interest expense (2,119) (1,905)
- --------------------------------------------------------------------------------
(2,004) (1,643)
- --------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes, minority interest
in subsidiary and extraordinary item 830 (2,337)
- --------------------------------------------------------------------------------
Income taxes 212 89
- --------------------------------------------------------------------------------
Income (loss) from continuing
operations before minority
interest in subsidiary and
extraordinary item 618 (2,426)
- --------------------------------------------------------------------------------
Minority interest in subsidiary -- 79
- --------------------------------------------------------------------------------
Income (loss) from continuing
operations before extraordinary item 618 (2,505)
- --------------------------------------------------------------------------------
Discontinued operations:
Income from discontinued
operations (net of tax of $268) -- 403
- --------------------------------------------------------------------------------
Income (loss) before extraordinary loss 618 (2,102)
- --------------------------------------------------------------------------------
Extraordinary loss on
early extinguishment of debt (158) --
- --------------------------------------------------------------------------------
Net income (loss) $ 460 $ (2,102)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Earnings per common share:
Income (loss) from continuing operations $ 0.06 $ (0.25)
Income (loss) from discontinued operations -- 0.04
Extraordinary loss (0.01) --
- --------------------------------------------------------------------------------
Net income (loss) per common share $ 0.05 $ (0.21)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Average common shares outstanding 10,100 10,100
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
ADIENCE, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE-MONTH PERIOD ENDED JULY 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Additional Retained Foreign Total
Common Paid In Earnings Currency Shareholders'
(IN THOUSANDS) Stock Capital (Deficit) Translation Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1995 $101 $12,303 $(3,688) $144 $ 8,860
Dividend in kind
paid to The Alpine Group, Inc. (5,785) (5,785)
Net income 460 460
Foreign currency
translation adjustment (16) (16)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1995 $101 $ 6,518 $(3,228) $128 $ 3,519
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
ADIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
July 31, July 31,
(In thousands of dollars, except per share data) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ 460 $(2,102)
Non-cash expenses and revenues included in income (loss):
Depreciation and amortization 1,131 1,644
Provision for doubtful accounts 45 159
(Gain) loss on disposal of property, plant and equipment 2 (69)
Minority interest -- 79
Changes in operating assets and liabilities:
Accounts receivable 130 (637)
Inventories, prepaid expenses, deposits and other (1,305) 2,392
Costs and estimated earnings in excess of billings on uncompleted contracts (369) (899)
Income tax receivable -- 696
Accounts payable, salaries, wages and withholdings, accrued expenses, accrued
insurance, accrued interest, income tax payable and payable to principal shareholder 2,732 (2,092)
Billings in excess of costs and estimated earnings on uncompleted contracts (94) (282)
Other (3) 310
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 2,729 (801)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (345) (788)
Other (35) (276)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (380) (1,064)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving lines of credit (2,475) 1,415
Net borrowings (payments) on long-term obligations (315) (131)
Net borrowings (payments) from The Alpine Group, Inc. 60 --
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (2,730) 1,284
- ----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (381) (581)
Cash and cash equivalents at beginning of period 1,974 1,771
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 1,593 1,190
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
ADIENCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
JULY 31, 1995
1. ACQUISITION BY THE ALPINE GROUP, INC.
On December 21, 1994, The Alpine Group, Inc. ("Alpine") acquired from certain
stockholders of Adience, Inc. ("Adience" or the "Company") 82.3% of its
outstanding common stock (the "Adience Acquisition"). At April 30, 1995,
Alpine, which had previously purchased 4.9% of Adience's common stock, owned
87.2% of Adience's outstanding common stock.
The Adience Acquisition has been accounted for using the purchase method to the
extent of the percentage of outstanding common stock acquired by Alpine. The
12.8% outstanding common stock not acquired by Alpine remains reflected at
prevailing net book value. In effect, 12.8% of the pre-acquisition retained
earnings (deficit) is carried forward in Adience's post-acquisition balance
sheet. On July 21, 1995, the 12.8% minority interest was purchased by Alpine
for $1.6 million on a cash out merger. As a result of this transaction, Adience
became a 100% wholly owned subsidiary of Alpine. Accordingly, Adience's results
of operations have been included in Alpine's consolidated results on a
prospective basis from the date of the acquisition. The estimated purchase
price for the Adience Acquisition (including expenses) of $12.4 million has been
allocated to the fair market value of Adience's assets and liabilities as of the
Adience Acquisition date based on preliminary assumptions and is subject to
revision. The excess of the estimated purchase price over the estimated fair
market value of identifiable net assets acquired resulted in goodwill of
approximately $38.7 million, which is being amortized on a straight line basis
over 30 years.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Adience and
Adience Canada. All material intercompany accounts and transactions have been
eliminated from the consolidated financial statements.
The accompanying unaudited financial statements of Adience are presented on a
"stand alone" basis, and accordingly, transactions with Alpine and their
subsidiaries are not eliminated.
The accounts of IDT are included in the consolidated balance sheets under the
caption "Net assets of discontinued operations." The intercompany payable to
IDT is separately disclosed in the accompanying balance sheets under the caption
"Payable to affiliate," since the right of offset does not exist between the
companies (see Note 4).
The accompanying unaudited consolidated financial statements of Adience reflect
all adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of operations for the interim periods presented.
These financial statements should be read in conjunction with the summary of
significant accounting policies and the notes to the financial statements
included in the Company's audited financial statements as of April 30, 1995 and
December 31, 1994.
Certain reclassifications have been made to the July 31, 1994 financial
statements to conform with the July 31, 1995 presentation.
The July 31, 1994 statements of operations and cash flow do not reflect
adjustments resulting from the allocation of the Alpine purchase price to assets
and liabilities. Consequently, the consolidated statements of operations and
cash flows after the date of acquisition are not comparable to the respective
financial statements prior to such date due to the different basis of accounting
for the periods presented.
6
<PAGE>
3. INVENTORIES
The components of inventories are:
July 31, April 30,
(In thousands) 1995 1995
--------------------------------------------------------
Raw materials $3,754 $3,037
Work in process 1,724 1,488
Finished goods 5,286 5,022
--------------------------------------------------------
$10,764 $9,547
--------------------------------------------------------
4. DISCONTINUED OPERATIONS
As of December 21, 1994 Alpine and Information Display Technology, Inc. ("IDT"),
a majority-owned subsidiary of Adience, entered into an Agreement and Plan of
Merger, which provides for the merger of Alpine's information display group (a
business segment of Alpine), comprised of Alpine/PolyVision, Inc. ("APV") and
Posterloid Corporation ("Posterloid"), with and into two separate wholly-owned
subsidiaries of IDT formed for the purpose of acquiring APV and Posterloid. To
effectuate the merger, the Company's equity interest in IDT was distributed to
Alpine as a dividend in kind. In addition, the balance of the amounts due IDT
was assigned to Alpine On June 14, 1995, Alpine distributed a majority of its
ownership in the information display group, consisting of IDT, APV and
Posterloid to its stockholders. As a result of the merger and subsequent
distribution, Adience's consolidated financial statements have been reclassified
to reflect operations of IDT as discontinued.
5. LINES OF CREDIT
On July 21, 1995, through proceeds form debt restructuring, Alpine repaid the
balance outstanding under the Adience revolving credit facility (see Note 6).
6. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
July 31, April 30,
1995 1995
- --------------------------------------------------------------------------------
(In thousnads)
<S> <C> <C>
New Senior Secured Notes due 2002, interest at 11% $4,989 $49,079
Capital lease obligations 541 621
Notes payable with monthly installments of principal
interest of $22 through December 1997, interest at 10% 537 587
Industrial Development Authority Note with monthly
installments of principal and interest of $2 through
February 2010, interest at 2% 336 343
Machinery and Equipment Loan Fund Note with
monthly installments of principal and interest of $4
through February 2002, interest at 2% 349 361
Other (interest ranges from 10% to 13%) 492 519
- --------------------------------------------------------------------------------
7,244 51,510
Less: current portion 701 714
- --------------------------------------------------------------------------------
6,543 50,796
Discount on New Senior Secured Notes 352 3,583
- --------------------------------------------------------------------------------
$6,191 $47,213
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
6. LONG-TERM OBLIGATIONS (CONTINUED)
The New Senior Secured Notes with an annual interest rate of 11% were issued
under an indenture agreement dated as of June 30, 1993. The New Secured Notes
are redeemable at the option of Adience after December 15, 1997. The New
Secured Notes are not guaranteed by the subsidiaries of Adience. The New
Secured Notes are secured by a lien on all the assets of Adience.
Adience, on a consolidated basis, has agreed to certain restrictive covenants
which are customary for such financings including, among other things,
limitations on additional indebtedness, limitations on asset sales and
restrictions on the payment of dividends.
On July 21, 1995, Alpine completed placement of $153 million of 12.25% Senior
Secured Notes and entered into an $85 million revolving credit facility. A
portion of the proceeds were used to redeem at a discount approximately 90% of
the $49 million face amount of Adience's 11% Senior Secured Notes and the
repayment of the balance outstanding under Adience's revolving credit facility.
The Alpine Notes are guaranteed by Adience and Superior Telecommunications, Inc.
("Superior"), another Alpine subsidiary, and are secured by a pledge of the
capital stock of Adience and Superior.
As a result of the refinancing and the aforementioned redemption of
indebtedness, the Company recognized a $158,000 extraordinary loss on the early
extinguishment of debt during the quarter ended July 31, 1995, related
principally to termination fees associated with the credit facility.
7. COMMITMENTS AND CONTINGENCIES
In February 1992, PolyVision was cited by the Ohio Environmental Protection
Agency (the "Ohio EPA") for violations of Ohio's hazardous waste regulations,
including speculative accumulation of waste (holding waste on-site beyond the
legal time limit) and illegal disposal of hazardous waste on the site of its
Alliance, Ohio manufacturing facility. In December 1993, PolyVision and Adience
signed a consent order with the Ohio EPA and the Ohio Attorney General which
required PolyVision and Adience to pay to the State of Ohio a civil penalty and
to remediate the site in accordance with specified cleanup goals. In addition,
the consent order requires the payment of stipulated penalties of up to $1,000
per day for failure to satisfy certain requirements of the consent order,
including milestones in the closure plan. In October 1994, PolyVision and
Adience filed a proposed amendment to the consent order which would allow
PolyVision and Adience to establish risk-based cleanup goals, an approach which
has been approved by the Ohio EPA for other contaminated sites. If the Ohio EPA
approves this propose amendment, use of this approach is expected to reduce the
extent and cost of remediation required at this site. The Ohio EPA has not yet
responded to this proposed amendment. At July 31, 1995, environmental accruals
amounted to $123,000 which represents management's estimate of the amounts
remaining to be incurred in this matter, including the costs of effecting the
closure plan, bonding and insurance costs, penalties and legal and consultants'
fees. If the Ohio EPA does not accept the proposed amendment to the consent
order, the cost of the remediation may exceed the amounts currently accrued.
Under the acquisition agreement pursuant to which PolyVision acquired the
Alliance facility from Adience, Adience represented and warranted that, except
as otherwise disclosed to PolyVision, no hazardous material had been stored or
disposed of on the property. No disclosure of storage or disposal of hazardous
material on the site was made. Accordingly, Adience is required to indemnify
PolyVision for any losses in excess of $250,000, PolyVision has notified Adience
that it is claiming the right to indemnification for all costs in excess of
$250,000 incurred by PolyVision in this matter and has received assurance that
Adience will honor such claim.
Adience was recently named as one of many defendants in a class action lawsuit
brought in the circuit court of Cook County, Illinois, seeking unstated monetary
damages and alleging that products produced by Adience caused certain of its
employees, former employees, and such persons' family members to suffer from
asbestos-related diseases or an increased risk of developing such diseases.
Alpine and its counsel are evaluating the validity of such claims and the scope
of its potential liabilities and defense costs.
8
<PAGE>
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Adience is subject to other legal proceedings and claims which have primarily
arisen in the ordinary course of business and have not been finally adjudicated.
In the opinion of management, based on its examination of such matters and
discussions with counsel, the ultimate resolution of all pending or threatened
litigation, claims and assessments will not have a material adverse effect upon
Adience's consolidated financial position or results of operations.
8. RELATED TRANSACTIONS
Adience performs certain management and administrative services for PolyVision.
These services include the use of Adience's management information system, the
preparation of quarterly and annual SEC filings, the preparation of all federal
and state tax returns, cash management together with daily and monthly reporting
to the companies' primary lender, the administration of insurance and workers'
compensation programs, legal and employee benefit services and the preparation
of salaried payrolls. The fee paid by PolyVision for these services, as agreed
to by the respective Boards of Adience and PolyVision, is at the current rate of
$300,000 per year.
As a result of the restructuring of debt (see Note 6) and additional borrowings
through the use of Alpine's credit facility, as of July 31, 1995, the Company is
indebted to Alpine in the amount of $47.3 million. In conjunction with this
indebtedness, Alpine charges the Company interest and related debt service
expenses at their prevailing rate. The total interest expense incurred and
reflected on the accompanying financial statements totaled $200,000 for the
period ended July 31, 1995.
9
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC.
(A WHOLLY-OWNED SUBSIDIARY
OF THE ALPINE GROUP, INC. AND
FORMERLY SUPERIOR TELETEC INC.)
FINANCIAL STATEMENTS
AS OF APRIL 30, 1995 AND MAY 1, 1994
TOGETHER WITH AUDITORS' REPORT
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC.
(FORMERLY SUPERIOR TELETEC INC.)
INDEX
PAGE
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS:
BALANCE SHEETS AS OF APRIL 30, 1995 AND MAY 1, 1994 2
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE
YEAR ENDED APRIL 30, 1995 AND THE PERIOD FROM
NOVEMBER 11, 1993 TO MAY 1, 1994 3
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED
APRIL 30, 1995 AND FOR THE PERIOD FROM
NOVEMBER 11, 1993 TO MAY 1, 1994 4
NOTES TO FINANCIAL STATEMENTS 5-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Superior Telecommunications Inc.:
We have audited the accompanying balance sheets of Superior Telecommunications
Inc., (a Georgia corporation and a wholly-owned subsidiary of The Alpine Group,
Inc. and formerly Superior TeleTec Inc.) as of April 30, 1995 and May 1, 1994,
and the related statements of operations and retained earnings and cash flows
for the year ended April 30, 1995 and for the period from November 11, 1993 to
May 1, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Superior Telecommunications
Inc. as of April 30, 1995 and May 1, 1994, and the results of its operations and
its cash flows for the year ended April 30, 1995 and for the period from
November 11, 1993 to May 1, 1994 in conformity with generally accepted
accounting principles.
New York, New York
June 16, 1995
1
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC.
(formerly Superior TeleTec Inc.)
BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, May 1,
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,500 $ 3,500
Accounts receivable, net of allowance
for uncollectible accounts of $39,690
and $42,031 in 1995 and 1994, respectively 18,267,889 14,243,860
Inventories 19,665,092 17,515,347
Deferred income taxes 758,675 1,305,637
Other current assets 282,634 157,207
----------- -----------
Total current assets 38,977,790 33,225,551
----------- -----------
Property and equipment:
Land and improvements 925,779 925,779
Buildings and improvements 6,599,648 6,599,648
Machinery and equipment 22,319,093 20,968,318
----------- -----------
29,844,520 28,493,745
Less accumulated depreciation 3,712,717 1,127,299
----------- -----------
Total property and equipment, net 26,131,803 27,366,446
----------- -----------
Goodwill, net of accumulated amortization 32,161,175 33,114,794
Other long-term assets 1,017,445 1,309,478
----------- -----------
Total assets $98,288,213 $95,016,269
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Due to banks $ 2,842,074 $ 431,292
Current maturities of long-term debt 1,600,000 1,600,000
Accounts payable 13,438,671 11,220,532
Accrued expenses and other liabilities 3,640,137 3,223,851
----------- -----------
Total current liabilities 21,520,882 16,475,675
----------- -----------
Long-term debt 25,319,679 29,666,959
----------- -----------
Deferred income taxes 5,693,629 6,150,526
----------- -----------
Other long-term liabilities 1,493,038 1,383,403
----------- -----------
Commitments and contingencies (Note 9)
Stockholder's equity:
Common stock - authorized 10,000 shares,
par value $.01, issued and outstanding
1,000 shares 10 10
Additional paid-in capital 41,143,565 41,143,565
Retained earnings 3,117,410 196,131
----------- -----------
Total stockholder's equity 44,260,985 41,339,706
----------- -----------
Total liabilities and stockholder's equity $98,288,213 $95,016,269
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC.
(formerly Superior TeleTec Inc.)
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the year ended April 30, 1995 and the
period from November 11, 1993 to May 1, 1994
<TABLE>
<CAPTION>
April 30, May 1,
1995 1994
------------ -----------
<S> <C> <C>
Net Sales $136,577,996 $46,856,808
Cost of sales 122,428,050 42,849,192
------------ -----------
Gross profit 14,149,946 4,007,616
Selling, general, and administrative expense 5,009,444 1,949,778
Goodwill amortization 1,124,090 432,701
------------ -----------
Operating income 8,016,412 1,625,137
Interest expense, net 2,877,833 1,097,417
------------ -----------
Income before income tax expense 5,138,579 527,720
Income tax expense 2,217,300 331,589
------------ -----------
Net income 2,921,279 196,131
Retained earnings at beginning of period 196,131 ---
------------ -----------
Retained earnings at end of period $ 3,117,410 $ 196,131
------------ -----------
------------ -----------
Net income per share of common stock $ 3,117.41 $ 196.13
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC.
(formerly Superior TeleTec Inc.)
STATEMENTS OF CASH FLOWS
For the year ended April 30, 1995 and the
period from November 11, 1993 to May 1, 1994
<TABLE>
<CAPTION>
April 30, May 1,
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,921,279 $ 196,131
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,967,280 1,687,133
Deferred income taxes 90,065 331,589
(Increase) decrease in:
Accounts receivable (4,024,029) (3,118,794)
Inventories (2,260,436) 1,097,532
Other current assets (142,095) 169,401
Increase (decrease) in:
Accounts payable 2,218,139 1,196,008
Accrued expenses and other liabilities 317,468 (380,831)
----------- -----------
Net cash provided by operating activities 3,087,671 1,178,169
----------- -----------
Cash flows from investing activities:
Proceeds from equipment sales 33,035 43,392
Capital expenditures (1,388,117) (420,376)
Capitalized merger and acquisition costs (315,685) (2,203,674)
Other 150,047 12,313
----------- -----------
Net cash used in investing activities (1,520,720) (2,568,345)
----------- -----------
Cash flows from financing activities:
Increase (decrease) in due to banks 2,410,782 (624,977)
Proceeds from lease finance obligation --- 5,000,000
Borrowings (repayments) under revolving
line of credit, net (2,033,514) 1,628,436
Principal payments on term loan (2,313,766) (3,300,000)
Capitalized financing costs (15,453) (1,315,683)
Proceeds from sale of interest rate cap 385,000 ---
----------- -----------
Net cash (used in) provided by financing activities (1,566,951) 1,387,776
----------- -----------
Net decrease in cash --- (2,400)
Net cash at beginning of period 3,500 5,900
----------- -----------
Net cash at end of period $ 3,500 $ 3,500
----------- -----------
----------- -----------
Cash paid during the period for interest $ 2,824,821 $ 738,407
----------- -----------
----------- -----------
Cash paid during the period for income taxes $ 227,784 $ ---
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC.
(formerly Superior TeleTec Inc.)
NOTES TO FINANCIAL STATEMENTS
For the year ended April 30, 1995 and the
period from November 11, 1993 to May 1, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
Prior to November 10, 1993, Superior Telecommunications Inc. (the
"Company") was a wholly owned subsidiary of Superior TeleTec Inc.
("STT"). On November 10, 1993, STT merged with and into The Alpine
Group, Inc. ("AGI") resulting in the Company becoming a wholly owned
subsidiary of AGI.
As of the merger date, STT's principal asset was its investment in the
Company. Accordingly, the merger has been accounted for as if the
Company was acquired by AGI resulting in the allocation of the merger
consideration to the assets and liabilities of the Company.
(b) FISCAL PERIODS
The Company operates on a fiscal year ending on the Sunday closest to
April 30, which coincides with AGI's fiscal year end. The financial
statements include the fiscal year ended on April 30, 1995 and the
period from the merger date (November 10, 1993) through May 1, 1994.
(c) INVENTORIES
Inventories are valued at the lower of cost, determined on a first-in,
first-out basis, or market.
(d) PROPERTY AND EQUIPMENT
As of the merger date, the Company's property and equipment was
recorded at its appraised fair market value. Property and equipment
acquired since the merger is recorded at cost. When assets are
retired or otherwise disposed of, the recorded values less accumulated
depreciation are removed from the accounts.
Depreciation is provided over the estimated useful lives using the
straight-line method for financial reporting purposes and primarily
accelerated methods for tax reporting purposes. The estimated lives
are as follows:
Buildings and Improvements 5-32 yrs
Machinery and Equipment 2-12 yrs
(e) CONCENTRATIONS OF CREDIT RISK
At April 30, 1995 and May 1, 1994 sales to the seven regional Bell
operating companies, and two major independent telephone companies
represented 74% and 78%, respectively, of Superior's net sales. At
April 30, 1995 and May 1, 1994, accounts receivable from these
coustomers were $11,131,000.
(f) EARNINGS PER SHARE
Earnings per common share is computed by dividing income or loss by
the weighted average number of shares outstanding. For the periods
presented, the weighted average number of shares was 1,000.
(g) GOODWILL
Goodwill resulting from the excess of the purchase price over net
identifiable assets acquired by AGI is being amortized over 80
years on the straight-line method. Goodwill is periodically
reviewed to access recoverability from future operations using
undiscounted cash flows, in accordance with the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." Impairments would be recognized in operating
results if a permanent diminution in value occurred.
5
<PAGE>
(2) MERGER
As discussed in note 1(a), on November 10, 1993 the Company's former
parent, STT, merged with and into AGI. The merger has been accounted for
in the Company's financial statements under the purchase method as if AGI
acquired the Company for a purchase price of approximately $60.8 million
representing the merger consideration paid to STT shareholders plus merger
related expenses. The allocation of the purchase price to the fair market
value of the Company's assets and liabilities as of the merger date
resulted in goodwill of approximately $33.5 million. Goodwill is being
amortized on a straight line basis over 30 years. Accumulated amortization
of goodwill at April 30, 1995 and May 1, 1994 was $1,556,791 and $432,701,
respectively.
(3) INVENTORIES
The major classifications of inventories as of April 30, 1995 and May 1,
1994 are as follows:
1995 1994
---- ----
Raw material $ 6,879,274 $ 3,978,154
Work in process 4,324,915 2,670,737
Finished goods 8,460,903 10,866,456
----------- -----------
$19,665,092 $17,515,347
----------- -----------
----------- -----------
(4) LONG-TERM DEBT
Long-term debt at April 30, 1995 and May 1, 1994 consists of the following:
1995 1994
---- ----
Revolving credit loan $16,533,444 $18,566,959
Term loan 5,386,235 7,700,000
Lease finance obligation 5,000,000 5,000,000
----------- -----------
26,919,679 31,266,959
Less current maturities 1,600,000 1,600,000
----------- -----------
$25,319,679 $29,666,959
----------- -----------
----------- -----------
The revolving credit loan and term loan represent borrowings under a credit
facility obtained in conjunction with the merger of STT with and into AGI.
This credit facility was paid off on May 11, 1995 from the proceeds of the
Alcatel Acquisition Notes described below.
The lease finance obligation resulted from a sale/leaseback of the
Company's manufacturing facility in December 1993 which, due to the
Company's continuing involvement in the form of a repurchase option, has
been recorded under the finance method. The sale/leaseback transaction
included a sales price of $5.0 million and net cash proceeds (after fees
and expenses) of approximately $4.5 million. The term of the leaseback is
twenty years, with five additional option terms (at the Company's election)
of five years each. The Company has a one time option to repurchase the
property during the eleventh year of the lease term at the greater of the
property's fair market value (as defined in the lease) or $5.0 million plus
related ancillary costs. Annual lease payments are approximately $630,000,
and are subject to adjustments based on changes in short term interest
rates (monthly) and increases in the consumer
6
<PAGE>
(4) LONG-TERM DEBT, (CONTINUED)
price index (on a triennial basis). Until the repurchase option expires or
is exercised, all lease payments will be reflected as interest expense.
The related asset, which is being depreciated over its estimated useful
life, has a net carrying value of $7.2 million at April 30, 1995 and is
classified as land and buildings in the accompanying balance sheet.
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. At April
30, 1995, the fair value of the Company's long-term debt approximated its
recorded value.
On May 11, 1995, the Company completed the acquisition of the U.S. and
Canadian copper wire and cable business of Alcatel NA Cable Systems, Inc.
and Alcatel Canada Wire, Inc. (collectively, "Alcatel NA"). In connection
with the acquisition (see Note 11), the Company sold $140,000,000 aggregate
principal amount of notes (the "Alcatel Acquisition Notes"). Two series of
notes were issued: $85,000,000 of Variable Rate Senior Secured Guaranteed
Extendible Revolving Notes, Series A, due 1997 (the "Series A Senior
Notes") and $55,000,000 aggregate principal amount of 11% Senior Secured
Guaranteed Extendible Notes, Series B, due 1997 (the "Series B Senior
Notes"). The Series A and B Senior Notes are guaranteed by the Company and
secured by all of the common stock of the Company. The notes will mature
on the second anniversary of their issuance, except that the maturity date
may be extended up to two times for a period of six months per extension at
the Company's option. The Series A Senior Notes bear interest equal to the
prime rate plus 1.5% per annum prior to any extension. The Series B Senior
Notes bear interest at the rate of 11% per annum during the first six
months following their issuance, increasing by 0.5% for each succeeding
six-month period. During any extension period, the interest rate on the
Series A Senior Notes will be the prime rate plus 3% and the interest rate
on the Series B Senior Notes will be 14%. (See Note 11 for further
discussion.)
(5) INCOME TAXES
For Federal income tax purposes the Company's taxable income is included as
part of a consolidated Federal return filed by AGI. The Company does,
however, file separate state income tax returns. The Company accounts for
income taxes on a stand alone basis, as if it filed a separate Federal
return, with any current Federal income taxes due being reflected as a
payable to AGI.
Income tax expense for the periods ended April 30, 1995 and May 1, 1994
consist of the following:
1995 1994
---- ----
Current:
Federal $1,830,430 $ ---
State 296,805 ---
---------- --------
2,127,235 ---
Deferred:
Federal 78,214 287,959
State 11,851 43,630
---------- --------
90,065 331,589
---------- --------
Total income tax expense $2,217,300 $331,589
---------- --------
---------- --------
7
<PAGE>
(5) INCOME TAXES, (CONTINUED)
A reconciliation of income tax expense reported in the accompanying
statements of operations to the amount of income tax expense that would
result from applying the Federal statutory rate of 34% to income before
income taxes for the periods ended April 30, 1995 and May 1, 1994 is as
follows:
1995 1994
---- ----
Expected income tax expense at
Federal statutory tax rate $1,747,117 $179,425
Nondeductible goodwill amortization 382,191 147,118
State income tax expense, net of
Federal tax benefit 203,713 28,796
Other, net (115,721) (23,750)
---------- --------
$2,217,300 $331,589
---------- --------
---------- --------
The Company recognizes deferred tax assets and liabilities for the expected
future tax impact of temporary differences between the financial statement
and tax basis of assets and liabilities as well as for the expected future
tax benefit to be derived from tax loss carry forwards. The tax effect for
the primary temporary differences giving rise to deferred tax assets
(liabilities) at April 30, 1995 and May 1, 1994 are as follows:
<TABLE>
<CAPTION>
Current Long-term
------- ---------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fixed asset depreciation and sale/leaseback accounting $ -- $ -- $(6,384,972) $(6,753,654)
Accruals and expenses not deducted for tax purposes 313,692 458,529 691,343 603,128
Reserves against realization of certain assets 324,362 312,365 -- --
Inventory cost capitalization 120,621 143,647 -- --
Net operating loss carry forwards -- 391,096 -- --
-------- ---------- ----------- -----------
Valuation allowance -- -- -- --
-------- ---------- ----------- -----------
$758,675 $1,305,637 $(5,693,629) $(6,150,526)
-------- ---------- ----------- -----------
-------- ---------- ----------- -----------
</TABLE>
(6) POSTRETIREMENT HEALTH CARE BENEFITS
The Company's current policy for postretirement health care benefits
provides each employee and spouse, upon reaching normal or early retirement
and upon achieving certain minimum service requirements, a fixed monthly
benefit for the purchase of company-sponsored health care insurance. The
amount of the fixed monthly benefit will not be increased in the future,
notwithstanding medical-based inflation cost increases. The Company
reserves the right in the future to modify its policy toward providing
postretirement company-sponsored health care insurance.
8
<PAGE>
(6) POSTRETIREMENT HEALTH CARE BENEFITS, (CONTINUED)
The accumulated postretirement health care benefit obligation, which is
included in long-term liabilities in the accompanying balance sheet,
consisted of the following at April 30, 1995 and May 1, 1994:
1995 1994
---- ----
Retirees $ 733,000 $ 706,984
Fully eligible active plan
participants 164,000 171,457
Other active plan participants 596,038 504,962
---------- ----------
$1,493,038 $1,383,403
---------- ----------
---------- ----------
Postretirement health care benefit cost for the periods ended April 30,
1995 and May 1, 1994 included service cost of $44,500 and $24,426 and
interest cost of $117,571 and $36,836, respectively. An increase in the
health care cost trend assumptions would not change the annual expense or
obligation amounts as the employer cost is effectively capped.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0% and 6.5% for the periods ended
April 30, 1995 and May 1, 1994, respectively.
(7) RETIREMENT PLAN
The Company maintains a profit sharing plan with a 401(k) component for
thebenefit of its employees. The profit sharing component of the plan
allows for discretionary contributions, whereas the 401(k) component of the
plan provides for employee contributions through salary reduction election
with certain mandatory employer matching contributions. During the periods
ended April 30, 1995 and May 1, 1994, the Company made or accrued matching
contributions of $210,818 and $60,286, respectively.
(8) MAJOR CUSTOMERS
Two customers accounted for 30% and 16%, and 26% and 14% of revenues during
the year ended April 30, 1995 and the period ended May 1, 1994,
respectively.
(9) RELATED PARTY TRANSACTIONS
Other long-term assets include balances of $316,190 and $11,881 due to AGI
at April 30, 1995 and May 1, 1994, respectively. The Company also paid
certain administrative expenses of $936,314 and $538,248 in the periods
ended April 30, 1995 and May 1, 1994, respectively, on behalf of AGI and
its other subsidiaries.
9
<PAGE>
(10) COMMITMENTS
As of April 30,1995, future minimum lease payments under noncancellable
operating leases are as follows:
Year ending
------------
1996 $413,605
1997 168,303
1998 66,248
1999 45,960
2000 and thereafter 45,960
--------
$740,076
--------
--------
During the periods ended April 30, 1995 and May 1, 1994, the Company's
rental and lease expense was $554,554 and $288,367, respectively.
(11) SUBSEQUENT EVENT
On May 11, 1995, the Company completed the acquisition of the U.S. and
Canadian copper wire and cable business of Alcatel NA Cable Systems, Inc.
and Alcatel Canada Wire, Inc., which was financed with the proceeds of the
sale of $140,000,000 aggregate principal amount of notes (see Note 4). The
following reflects the preliminary allocation of the purchase price to the
net assets based upon the estimated fair values of such assets:
Amount
------
(in thousands)
Estimated acquisition cost. . . . . . . . . . . . . . . . . $103,755
Less historical book value of net assets
at May 11, 1995 . . . . . . . . . . . . . . . . . . . . . (81,255)
Write-up of property, plant and equipment . . . . . . . . . (4,945)
Accrual of employee relocation and severance costs. . . . . 500
--------
Acquisition goodwill (to be amortized over 30 years). . . . $ 18,055
--------
--------
The estimated acquisition cost of $103,755,000 represents (i) $93,000,000
paid in cash to Alcatel NA, (ii) a deferred amount payable to Alcatel NA on
August 11, 1995 in the amount of $10,255,000, and (iii) acquisition
expenses estimated at $500,000.
10
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY
OF THE ALPINE GROUP, INC.)
FINANCIAL STATEMENTS
JULY 30, 1995
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
July 30, April 30,
ASSETS 1995 1995
------ ------------ ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 362 $ 4
Accounts receivable, net 47,965 18,268
Inventories 42,295 19,665
Other current assets 1,509 1,041
------------ ----------
Total current assets 92,131 38,978
------------ ----------
Property and equipment, net 70,718 26,132
------------ ----------
Goodwill, net of accumulated amortization 48,965 32,161
Other long-term assets 905 1,017
------------ ----------
Total assets $ 212,719 $ 98,288
------------ ----------
------------ ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Due to banks $ 4,722 $ 2,842
Current maturities of long-term debt --- 1,600
Accounts payable 48,558 13,439
Accrued expenses and other liabilities 9,407 3,640
------------ ----------
Total current liabilities 62,687 21,521
------------ ----------
Due to Parent 94,607 ---
------------ ----------
Long-term debt 5,000 25,320
------------ ----------
Deferred income taxes 5,693 5,693
------------ ----------
Other long-term liabilities 1,493 1,493
------------ ----------
Stockholder's equity:
Common stock - authorized 10,000 shares,
par value $.01, issued and outstanding
1,000 shares --- ---
Additional paid-in capital 41,144 41,144
Foreign currency translation adjustment (256) ---
Retained earnings 2,351 3,117
------------ ----------
Total stockholder's equity 43,239 44,261
------------ ----------
Total liabilities and
stockholder's equity $ 212,719 $ 98,288
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
July 30, July 31,
1995 1994
---------- ----------
<S> <C> <C>
Net sales $ 94,029 $ 31,857
Cost of sales 86,426 28,511
---------- ----------
Gross profit 7,603 3,346
Selling, general, and administrative expense 1,779 1,188
Goodwill amortization 375 280
---------- ----------
Operating income 5,449 1,878
Interest expense, net 2,885 684
---------- ----------
Income before income tax expense and
extraordinary item 2,564 1,194
Income tax expense 1,227 560
---------- ----------
Income before extraordinary item 1,337 634
Extraordinary loss on early extinguishment of debt 2,103 ---
---------- ----------
Net (loss) income (766) 634
Retained earnings at beginning of period 3,117 196
---------- ----------
Retained earnings at end of period $ 2,351 $ 830
---------- ----------
---------- ----------
Income (loss) per share of common stock:
Income before extraordinary item 1,336.88 $ 633.90
Extraordinary loss on early extinguishment
of debt (2,103.52) ---
---------- ----------
Net (loss) income per share of common stock $ (766.64) $ 633.90
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
July 30, July 31,
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (766) $ 634
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization 2,103 991
Extraordinary loss on early
extinguishment of debt 3,298 ---
(Increase) decrease in:
Accounts receivable (548) 75
Inventories 10,462 554
Other current assets 382 (30)
Increase (decrease) in:
Accounts payable 10,006 386
Accrued expenses and other liabilities (1,303) (753)
---------- ----------
Net cash provided by operating activities 23,634 1,857
---------- ----------
Cash flows from investing activities:
Acquisitions, net of cash acquired (93,560) ---
Capital expenditures (1,104) (224)
Other 36 ---
---------- ----------
Net cash used in investing activities (94,628) (224)
---------- ----------
Cash flows from financing activities:
Repayments under revolving
line of credit, net (16,533) (2,249)
Increase (decrease) in due to Parent 94,607 (93)
Increase in due to banks 1,879 1,109
Principal payments on term loan (5,386) (400)
Capitalized financing costs (3,215) ---
---------- ----------
Net cash used in financing activities 71,352 (1,633)
---------- ----------
Net increase in cash 358 ---
Net cash at beginning of period 4 4
---------- ----------
Net cash at end of period $ 362 $ 4
---------- ----------
---------- ----------
Supplemental disclosures:
Cash paid during the period for interest $ 3,332 $ 852
---------- ----------
---------- ----------
Cash paid during the period for income taxes $ $ 379
---------- ----------
---------- ----------
Acquisition of business:
Assets, net of cash acquired $ 126,127
Deferred purchase consideration (9,909)
Liabilities assumed (22,658)
----------
Net cash paid $ (93,560)
----------
----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SUPERIOR TELECOMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 30, 1995
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Superior Telecommunications Inc. (the "Company") reflect all adjustments
which, in the opinion of management, are necessary for a fair presentation
of the results of operations for the interim periods presented. The
Company is a wholly owned subsidiary of The Alpine Group, Inc. ("AGI").
These financial statements should be read in conjunction with the summary
of accounting policies and the notes to the financial statements included
in the Company's financial statements for the year ended April 30, 1995.
(2) INVENTORIES
The major classifications of inventories are as follows (in thousands):
July 30, April 30
1995 1995
---------- ---------
Raw material $ 10,758 $ 6,879
Work in process 11,040 4,325
Finished goods 20,497 8,461
---------- ---------
$ 42,295 $ 19,665
---------- ----------
---------- ----------
(3) ALCATEL ACQUISITION
On May 11, 1995, the Company completed the acquisition (the "Alcatel
acquisition") of the U.S. and Canadian copper wire and cable business (the
"Alcatel Business") of Alcatel NA Cable Systems, Inc. and Alcatel Canada
Wire, Inc. (collectively, "Alcatel NA"). In connection with the
acquisition, the Company sold $140,000,000 aggregate principal amount of
notes (the "Alcatel Acquisition Notes"). The following reflects the
preliminary allocation of the purchase price of the net assets of the
Alcatel Business based upon the estimated fair values of such assets (in
thousands):
Estimated acquisition cost $ 103,409
Less historical book value of net assets
at May 11, 1995 (80,909)
Write-up of property, plant and equipment (4,945)
Accrual of Alcatel employee relocation
and severance costs 500
---------------
Acquisition goodwill $ 18,055
---------------
---------------
The estimated acquisition cost of $103,409,000 represents (1) $93,000,000
paid in cash to Alcatel NA, (2) a deferred amount payable to Alcatel NA on
August 11, 1995 in the amount of $9,909,000, and (3) acquisition expenses
estimated at $500,000.
5
<PAGE>
The Alcatel acquisition has been accounted for using the purchase method,
and, accordingly, Alcatel's results of operations are included in the
Company's results on a prospective basis from the date of acquisition.
Unaudited condensed pro forma results of operations for the three months
ended July 30, 1995 and July 31, 1994 which give effect to the Alcatel
acquisition as if the transaction occurred on May 1, 1994 are presented
below. The pro forma amounts reflect acquisition related purchase
accounting adjustments, including adjustments to depreciation and
amortization expense. The pro forma financial information does not purport
to be indicative of either the results of operations that would have
occurred had the acquisition taken place at the beginning of the periods or
of future results of operations.
Pro Forma
----------
(Unaudited)
Three months ended
-------------------------------------
July 30, 1995 July 31, 1994
-------------------------------------
(In thousands, except per share data)
Net sales $ 101,550 $ 82,682
Income before income tax expense
and extraordinary item 2,833 4,411
Income before extraordinary item 1,643 3,850
Net (loss) income (461) 2,820
Income (loss) per share of common stock:
Income before extraordinary item 1,643.00 2,820.00
Net (loss) income (461.00) 2,820.00
(4) DEBT
Long-term debt at July 30, 1995 consists of a lease finance obligation
resulted from a sale/leaseback of one of the Company's manufacturing
facilities in December 1993. The term of the leaseback is twenty years,
with five additional option terms of five years each.
On July 21, 1995 AGI completed a placement of $153,000,000 principal amount
of 12.25% Senior Secured Notes (the "Senior Notes") due 2003, with interest
payable semiannually. A portion of the proceeds from the Senior Notes were
advanced to the Company to repay the Alcatel Acquisition Notes. As a
result of this redemption, the Company recognized an $2,103,527
extraordinary loss (net of taxes of $1,194,900) on the early extinguishment
of debt during the quarter ended July 30, 1995 related principally to the
write-off of deferred loan fees.
The Senior Notes are unconditionally guaranteed on a senior unsecured basis
by the Company and its subsidiary, Superior Cable Corp., and another AGI
subsidiary. All of the Company's stock is pledged to the Senior Notes.
The Company and its subsidiary have also guaranteed the indebtedness
outstanding under AGI's $85.0 million revolving credit facility (the
"Credit Facility"), of which $34,208,000 was outstanding at July 30, 1995.
Amounts outstanding under the Credit Facility are due upon termination in
July 2000.
6
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Exhibit 1 to
Form 8-K
CONSULTING AGREEMENT
AGREEMENT, made as of this first day of November, 1995, by and between
THE ALPINE GROUP, INC., a Delaware corporation having its executive offices at
1790 Broadway, New York, New York 10019-1412 (the "Company") and JAMES R.
KANELY, residing at 65 Mountain Creek Trace, Atlanta, Georgia 30328 ("Kanely").
WITNESSETH:
WHEREAS, pursuant to an Employment Agreement dated as of November 10,
1993, as amended, between the Company and Kanely (the "Employment Agreement"),
Kanely has served as President and Chief Operating Officer of the Company; and
WHEREAS, effective October 31, 1995, Kanely has resigned as President
and Chief Operating Officer of the Company and desires to become a consultant to
the Chairman and Chief Executive Officer of the Company; and
WHEREAS, the Company and Kanely desire to confirm the termination of
the Employment Agreement and the retention of Kanely as a consultant to the
Company, on the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. ENGAGEMENT.
The Company hereby retains Kanely, and Kanely hereby agrees to be retained
by the Company, to serve as a consultant to the Chairman and Chief Executive
Officer of the Company, on the terms and conditions set forth herein.
2. TERM.
The term of this Agreement (the "Term") shall commence as of the date
hereof and shall terminate on October 31, 2000 (the "Termination Date"), unless
earlier terminated as provided in paragraph 13 hereof. If at or prior to the
Termination Date, the Company determines the services of Kanely will be required
beyond the Termination Date, the Company and Kanely agree to negotiate in good
faith terms of an appropriate extension of this Agreement.
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3. SERVICES TO BE RENDERED.
During the Term, Kanely shall provide to the Company and its Chief
Executive Officer consulting, business development and similar services of a
non-operating nature relating to the Company's strategic plan and business.
Such services shall be rendered at such times during normal business hours as
shall be reasonably requested by the Company and Kanely agrees to be available
to the Company for such purpose, it being understood that Kanely will not be
required to devote more than approximately 40% of his time during normal
business hours to rendering services and performing his responsibilities under
this Agreement. It is understood that such time commitment shall be reviewed on
a quarterly basis or other periodic basis determined by the Company and Kanely
and any unutilized time or availability not used during any such period will
lapse and not cumulate to successive periods.
4. PAYMENTS.
(a) In consideration of termination of the Employment Agreement and
relinquishment of any and all rights thereunder, and to induce Kanely to enter
into this Agreement, the Company agrees to pay Kanely, and Kanely agrees to
accept, the sum of $610,000, payable on the date hereof.
(b) In further consideration of the foregoing, and the services to be
performed by Kanely under this Agreement, the Company shall pay Kanely a
consulting fee of $120,000 per year, during each year of the Term, payable in
monthly installments of $10,000 each, on the last business day of each month.
Any payment for a period of less than a full month shall be prorated
accordingly.
(c) Payments under this Agreement shall be subject to all applicable
federal, state and local taxes, it being understood that as provided in
paragraph 11 hereof, the status of Kanely under this Agreement shall be that of
an independent contractor and not an employee and shall not be subject to
withholding or other taxes applicable solely to employees.
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5. HEALTH AND MEDICAL BENEFITS, ETC.
The Company agrees during the Term to provide to Kanely the health and
medical benefits of the Company heretofore maintained pursuant to Section 4(h)
and (i) of the Employment Agreement. Following expiration of the Term, the
Company shall provide for such benefits to the extent required by COBRA and
other provisions of applicable law.
6. PURCHASE OF AUTOMOBILE.
On or about the date hereof, Kanely or an affiliated company, shall
purchase from the Company, and the Company shall sell to Kanely, the automobile
owned by the Company presently used by Kanely, at a price of $10,000, payable on
the date hereof.
7. VESTING UNDER SERP.
During the Term, Kanely shall enjoy the rights and benefits of a
participant under the Supplemental Retirement Plan (the "SERP") of Superior
Telecommunications, Inc. ("STI"). In particular, (i) each year of completed
service under this Agreement shall constitute a "Year of Vested Service" as
defined in the SERP, for all purposes thereof; and (ii) Kanely shall not be
deemed Retired until termination of this Agreement.
8. STATUS OF STOCK OPTIONS AND STOCK AWARDS.
(a) Pursuant to Section 4(c) of the Employment Agreement, Kanely was
granted options to purchase 100,000 shares of Common Stock of the Company (the
"Common Stock"), such number of shares being subject to adjustment as provided
in the related option agreement (the "Stock Options"). It is agreed that
notwithstanding the termination of the Employment Agreement and the provisions
of Section 4(c) thereof, the Stock Options will remain in full force and effect
and will become exercisable upon the respective anniversaries of the
Commencement Date (as defined in the Employment Agreement) with the same force
and effect as if the Employment Agreement had continued in effect; provided,
that in the event of termination of this Agreement in accordance with its terms,
any and all Stock Options not becoming theretofore
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exercisable will lapse and be forfeited. Upon such termination, all Stock
Options then exercisable may be exercised for a period terminating 90 days after
such Termination Date.
(b) Pursuant to Section 4(d) of the Employment Agreement, Kanely was
granted a restricted stock award of 30,000 shares of Common Stock, pursuant to
the Company's Restricted Stock Award Plan (the "Stock Awards"). It is agreed
that notwithstanding the termination of the Employment Agreement and the
provisions of Section 4(d) thereof, the Stock Awards will remain in full force
and effect and the shares of Common Stock subject thereto shall become fully
vested and be released to Kanely upon the respective anniversaries of the
Commencement Date as if the Employment Agreement had continued in effect,
provided that in the event of termination of this Agreement in accordance with
its terms, any and all Stock Awards not theretofore vested and released shall be
cancelled and forfeited.
9. ANNUITY PAYMENTS.
The parties acknowledge that under an amendment dated as of November 10,
1993, to the Employment Agreement, the Company has agreed to provide certain
annuity payments to Kanely. Such obligation of the Company to make such annuity
payments to Kanely shall continue hereunder, but shall be modified as follows:
The Company shall pay $520,500 to Kanely in fifteen annual installments of
$34,700 each, starting on July 7, 2001 and ending on July 7, 2015, provided
that, in the event that this Agreement is terminated by Kanely prior to November
10, 1998, the amount of each such annual installment shall be multiplied by a
fraction, the numerator of which is the number of months from November 10, 1993
to the date of termination of this Agreement and the denominator of which is 60.
10. NON-COMPETITION.
(a) Kanely acknowledges that STI and the other subsidiaries of the Company
have significant customers and business throughout North America, as well as
elsewhere in the world, and that as a primary inducement to and consideration
for the Company entering into this Agreement, the Company requires that Kanely
enter into provisions protecting the Company
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from competition by Kanely, with the same force and effect as if the Employment
Agreement had continued in effect for the balance of its term. Accordingly,
Kanely agrees that he shall not directly or indirectly (whether by reason of
being an employee, agent, consultant, owner, partner, stockholder or otherwise)
engage in, within or from anywhere throughout North America, (i) during the
Term, in any business or enterprise competitive with any of the businesses
engaged in at the time by the Company or any of its subsidiaries or affiliates;
and (ii) for an additional period of two (2) years following the Termination
Date , any business or enterprise competitive with the cable and wire,
infractories and signage businesses, or any other business related or incident
thereto, then conducted by the Company, STI, or any of their subsidiaries or
affiliates (each of the foregoing in this clause (ii) being referred to as a
"Competing Business"). Notwithstanding the foregoing provisions of this
paragraph (a) it is agreed that Kanely may accept employment with or have
involvement with companies which include, among other businesses, a Competing
Business, so long as (x) the Competing Business is not the primary business of
such company and (y) Kanely is not directly involved with the Competing
Business. By reason of the foregoing sentence, the continuation of Kanely's
present activities on behalf of Morgan Crucible shall not be a breach of this
paragraph (a), so long as he is not directly involved in its refractories
business. In the event that the Company enters into a new business or
enterprise subsequent to Kanely's employment or involvement with a business or
enterprise which would be a Competing Business with such new business of the
Company, the provisions of this paragraph (a) shall not be deemed to prohibit or
impede Kanely's continued affiliation with such Competing Business.
(b) NON-SOLICITATION OF CUSTOMERS. During the Term and for a period of
two (2) years following the Termination Date, Kanely shall not (i) solicit, for
any Competing Business, any party which is at that time, or within one (1) year
prior thereto, a customer of the Company or any of its subsidiaries or
affiliates; or (ii) induce or endeavor to induce any such customer to
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reduce or discontinue the level of business it has conducted with the Company,
its subsidiaries or affiliates.
(c) NON-SOLICITATION OF EMPLOYEES. During the Term and for a period of
two (2) years following the Termination Date, Kanely shall not offer employment
nor seek to persuade or induce, directly or indirectly, any person who is at any
such time an employee of the Company or any of its subsidiaries or affiliates,
to discontinue such employment.
(d) NON-DISCLOSURE. Kanely recognizes and acknowledges that, in his
employment, he has had and may continue to have access to trade secrets and
other confidential or proprietary information of the Company, including, but not
limited to, technical and other information concerning actual and potential
products, product designs, performance data, engineering and production
techniques, marketing strategies, customer specifications and customer lists,
cost figures, budgets, sales forecasts, and product and business plans. Kanely
recognizes and acknowledges that the disclosure of such trade secrets and
information could be harmful to the interests of the Company. Kanely agrees
that during the Term he will take appropriate cautions to safeguard such trade
secrets and information, and will not use, disclose, divulge or publish at any
time, during the Term or thereafter, any such trade secrets or information
except as required by law or as his duties hereunder may require, or as the
Company may in writing consent. Kanely acknowledges that the provisions of this
paragraph 10(d) are necessary and integral to the Company's ability to
satisfactorily protect its trademark secrets and other confidential or propriety
information.
(e) PROPRIETARY INFORMATION. Kanely further recognizes and acknowledges
that all documents, manuals, letters, notebooks, reports, records, computer
programs or data bases, and other evidences of trade secrets and other
confidential or proprietary information of the Company, including copies
thereof, belong to the Company, and agrees that, during his employment by the
Company, will not, under any circumstances, remove any such materials for use
outside of the Company's offices except on the business of the Company during
the course of
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his employment. In the event of the termination of this Agreement for any
reason whatsoever, Kanely shall upon request promptly return to the Company any
and all such documents, manuals, and other materials which are the property of
the Company.
(f) ENFORCEABILITY. Kanely acknowledges that the provisions of this
paragraph 10 have been expressly bargained for to induce the Company to enter
into this Agreement and make the payments to Kanely provided for herein and that
in view of his business and financial circumstances specific performance of the
same will not result in an undue hardship upon Kanely. Kanely further agrees
that in the event of a breach of any of the covenants herein, the Company's
remedy at law will necessarily be inadequate and, accordingly, the Company will
be entitled to seek an injunction or other equitable relief with regard thereto.
The covenants herein and their applicability to any activity are separate and
severable. In the event that any of the covenants set forth herein are
determined to be unenforceable at law because of its scope, duration or
otherwise, a court or the arbitrators referred to in paragraph 15(e) below shall
be empowered to substitute therefor the broadest similar provision deemed
enforceable by such court or arbitrators, not to exceed the restrictions herein.
(g) DEFINITION OF TERM. As used in this paragraph 10, "Term" shall mean
the period consisting of the full five-year term of this Agreement ending on the
Termination Date, without giving effect to any earlier termination hereof.
11. INDEPENDENT CONTRACTOR.
The relationship of Kanely to the Company hereunder shall be that of an
independent contractor and not an employee for any purpose.
12. DIRECTORSHIP.
It is the intent of the parties that Kanely shall continue to serve, during
the Term, as a director of the Company, subject to the discretion of the Board
of Directors of the Company to reappoint and renominate directors. So long as
Kanely serves as such director, he shall be
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entitled to director's fees and expense reimbursements customarily offered by
the Company to its non-employee directors.
13. TERMINATION OF EMPLOYMENT AGREEMENT.
The Company and Kanely agree that except as otherwise expressly provided
herein, the compensation and benefits provided for herein are in full
satisfaction of, and in lieu of, any and all compensation and other benefits
provided in the Employment Agreement or otherwise on account of termination of
the Employment Agreement and that other than accrued and unpaid salary through
October 31, 1995, and a pro-rata portion of his bonus for the fiscal year ending
April 30, 1996, accrued through October 31, 1995, there are no further payments
or benefits due to Kanely under the Employment Agreement and the Employment
Agreement is hereby agreed to be of no further force or effect.
14. TERMINATION OF AGREEMENT.
(a) This Agreement is subject to termination by the parties as follows:
(i) By either party, on a date determined by such party, but in
any event not earlier than November 1, 1996, provided written notice
thereof is given to the other party not less than 90 days prior to the
desired date of termination;
(ii) upon the death or permanent disability of Kanely; or
(iii) by either party, at any time, in the event of any breach by
the other party of any provision of this Agreement, provided that
written notice of such breach is given not less than 30 days prior to
the desired date of termination and such breach is not cured or
remedied within such period.
(b) In the event of termination of this Agreement, Kanely shall be
entitled to receive:
(i) any and all payments under paragraph 4 hereof accrued and
payable at or prior to the date of termination, payable immediately
upon termination;
(ii) a lump sum payment equal to the aggregate amount of fees
which would have been earned by Kanely during the unexpired balance of
the Term pursuant to
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paragraph 4(b) hereof, payable upon (x) the effective date of
termination, in the case of termination under clause (i) of paragraph
14(a) hereof; PROVIDED, HOWEVER, that if such termination is by Kanely
on an effective date prior to November 1, 1997, then Kanely shall
continue to receive monthly payments under paragraph 4(b) hereof
through October 31, 1997 and shall receive a lump sum payment on
November 1, 1997 equal to the aggregate amount of such fees for the
then unexpired balance of the Term; or (y) 90 days after such
effective date, in the case of termination under clause (ii) or (iii)
of paragraph 14(a) hereof; and
(iii) those health and medical benefits to which he is entitled
under paragraph 5 hereof following Termination.
15. MISCELLANEOUS.
(a) This Agreement sets forth the entire agreement of the parties with
respect to the subject matter hereof and may not be amended, modified or waived
orally but only by writing signed by the party or parties to be bound thereby.
(b) This Agreement shall be binding upon the parties hereto and inure to
the benefit of their heirs, executors, administrators, successors and assigns.
Neither Kanely nor his spouse, heirs, executors, administrators, or assigns,
however, shall assign any part of their rights under this Agreement unless the
Company agrees in writing.
(c) Any notices to be given to either party hereto shall be delivered
personally or given by first class mail to the parties at their respective
addresses set forth at the head of this Agreement or at such other address as
such parties shall specify to the other in writing.
(d) The provisions of this Agreement shall be deemed separate and
severable and the invalidity or unenforceability of any provision hereof shall
not effect the validity or enforceability of the remainder of this Agreement.
(e) Any dispute or controversy arising under this Agreement shall be
settled by arbitration in New York, New York before a panel of three (3)
arbitrators under the rules of the
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American Arbitration Association, and judgment upon any award rendered by such
arbitrators may be entered in any court having jurisdiction; PROVIDED, HOWEVER,
that notwithstanding the foregoing, the Company shall have the right to seek to
obtain an injunction or other equitable relief from any court having
jurisdiction, pursuant to paragraph 10(f) hereof, as well from any such
arbitrators. For such purpose, Kanely hereby consents to the jurisdiction of
the federal and New York courts within New York County, State of New York.
(f) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, provided, however, that it is the intent of
the parties that any arbitrators acting pursuant to paragraph 15(e) hereof,
shall have the authority to apply such principles of substantive and procedural
law as shall as fully as practicable recognize the respective rights and
obligations of the parties as set forth herein.
IN WITNESS WHEREOF, the parties hereto, individually or by its duly
authorized representative, have set their hands as of the date first above
written.
THE ALPINE GROUP, INC.
By: /S/ STEVEN S. ELBAUM
----------------------------
STEVEN S. ELBAUM
Chairman
/S/ JAMES R.KANELY
---------------------------
JAMES R. KANELY
